Cost-Sharing Requirements For Publicly Insured Children Can Save
The Government Money, But They Can Also Create Heavy Burdens For Families

Income-Based Caps On Out-Of-Pocket Spending Can Protect Families
And Preserve Budgetary Savings, But Effectively Implementing These Caps Can Be Difficult

Bethesda, MD -- Adding even modest cost-sharing requirements for children insured through Medicaid and the Children’s Health Insurance Program (CHIP) could greatly increase the health spending burden faced by families, particularly for poor families and families of children with special health care needs, according to a study published today on the Health Affairs Web site. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.4.w607

Requiring premium contributions and copayments by families of publicly insured children has the potential to greatly reduce government spending, but such actions must be implemented with care to avoid large increases in financial burdens, say lead author Thomas Selden, an economist at the Department of Health and Human Services’ Agency for Healthcare Research and Quality (AHRQ) and coauthors Genevieve Kenney and Joel Ruhter of the Urban Institute and Matthew Pantell of the University of California, Berkeley, and UC San Francisco. The research was funded by AHRQ and the David and Lucile Packard Foundation.

Of critical importance is the extent to which cost-sharing is capped as a percentage of family income. Out-of-pocket (OOP) medical spending for publicly insured children is currently capped in CHIP at 5 percent of family income, and enforcement of such a cap could greatly reduce the financial burden on families while leaving most of the budgetary savings intact. However, it may be difficult for states to effectively monitor OOP spending and eliminate cost sharing once the cap is reached, especially in states that require copayments as well as premium contributions, the researchers say.

Families Already Face High Levels Of OOP Medical Spending. Even with no cost-sharing requirements for their children’s health care, many families of publicly insured children already face high health spending burdens because of parental medical expenses. Using data from the Medical Expenditure Panel Survey Household Component (MEPS-HC), a nationally representative survey of the U.S. civilian noninstitutionalized population sponsored by AHRQ and the National Center for Health Statistics, Selden and coauthors calculated that 12.7 percent of publicly insured children would be in families for which OOP medical spending consumed 10 percent or more of income, even with zero Medicaid and CHIP cost-sharing requirements for children. This percentage rises to 16.3 percent among families with incomes below the federal poverty level (FPL), versus 5.6 percent of families with income above 200 percent of the FPL.

The researchers then examined the premium contributions and copayments required by the various state Medicaid and CHIP programs. They modeled the effects of four different cost-sharing scenario, intended to bracket the median premium contributions and copayments required by states for families with incomes at 201 percent of poverty. For example, the lowest of the four scenarios consisted of premium contributions of $10 for one child, $15 for two children, and $20 for three or more children; and copays of $5 per nonpreventive ambulatory visit, $3 for each generic prescription and $5 for each brand-name prescription, $5 for each appropriate emergency department visit, and $10 for other ED visits.

“Even the lowest premium and copayment scenarios we examined for children’s public coverage would greatly increase the prevalence of high burden,” write Selden and his colleagues. For example, the researchers modeled the effect of combining the lower of their two levels of premium contributions with the lower of their two levels of copayments. They found that this combination would greatly increase the share of children in families facing OOP burdens of 10 percent of income or more, from 12.7 percent with no cost-sharing requirements to 21.5 percent. Among families with incomes at or below poverty, the number of families facing OOP burdens of 10 percent or more of income nearly doubled, from 16.3 percent to 32.3 percent. The potential for increasing financial pressures on low-income families is even greater if family burdens are viewed on a quarterly rather than an annual basis, given that both spending and incomes can vary greatly throughout the course of a year.

Income-Based Caps On OOP Medical Spending: The Promise And The Peril. Capping OOP spending for publicly insured children at 5 percent of family income greatly reduces the share of families facing high OOP spending burdens. For example, in the scenario just described, a 5 percent cap would decrease the number of families facing OOP burdens of 10 percent of income or more from 21.5 percent to 15.7 percent. For families with incomes below the FPL, the share facing OOP burdens of 10 percent of income or more would decline from 32.3 percent to 21.0 percent.

What’s more, income-based caps only modestly reduce the savings in government spending from Medicaid and CHIP cost-sharing requirements. For example, the highest of the four cost-sharing scenarios considered by Selden and coauthors led to estimated budget savings of $4.42 billion annually in 2004 dollars. Capping OOP medical spending for publicly insured at 5 percent of family income reduced those savings only modestly, to $3.79 billion annually.

“Our results show that the adverse impacts of cost sharing on high spending burden can be greatly reduced through the use of caps on spending -- and that such caps do not greatly reduce potential budgetary savings,” Selden and coauthors write. But they also offer this caution: “The logistical challenge, however, is for states to implement caps so that cost sharing is eliminated once the cap is reached, which may prove difficult given the limitations for tracking families’ incomes and their spending on medical care.”

The challenge of effectively implementing income-based caps on OOP spending is more difficult in states that require Medicaid and CHIP copayments, in addition to or instead of premium contributions. Some states have management information systems that allow them to track OOP spending and notify providers when no additional copayments should be charged. However, “many states rely on families to monitor their own out-of-pocket spending levels (using the so-called shoebox method) and notify the state once the cap has been hit,” Selden and his colleagues note.

Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.